Ares Capital Corporation reported strong third quarter results for September 30, 2023, with a significant increase in core earnings per share and overall value of its investment portfolio. The company remains optimistic about new investment opportunities and expects an uptick in M&A and portfolio company sales in 2024.
Key takeaways from the earnings call:
- Core earnings per share increased 18% year-over-year to $0.59, driven by higher net interest and dividend income.
- GAAP earnings per share were $0.89, reflecting strong core earnings and an increase in the overall value of the investment portfolio.
- Net asset value per share increased 3% since the beginning of the year to $18.99.
- Ares Capital originated $1.6 billion of new investments in the third quarter, with a focus on incumbent borrowers and repeat sponsors.
- The company returned to the investment grade debt markets with a $600 million debt issuance and maintained a strong liquidity position of approximately $5.3 billion.
- Ares Capital declared a fourth quarter dividend of $0.48 per share.
Ares Capital Corporation's (NASDAQ:ARCC) third quarter results showed strong performance, driven by higher net interest and dividend income. The company's core earnings per share increased 18% year-over-year to $0.59. GAAP earnings per share were $0.89, reflecting robust core earnings and an increase in the overall value of the investment portfolio.
The company's portfolio companies continue to perform well, with a stable interest coverage ratio and low non-accruals. Ares Capital's balance sheet remains strong, with net debt-to-equity levels of around one times and ample access to capital. The company declared a fourth quarter dividend of $0.48 per share.
During the third quarter, Ares Capital originated $1.6 billion of new investments, primarily focusing on incumbent borrowers and repeat sponsors. The total portfolio at fair value increased to $21.9 billion, reflecting net fundings and net unrealized gains.
The company also returned to the investment grade debt markets with a $600 million debt issuance, maintaining a strong liquidity position of approximately $5.3 billion. The weighted average yield on debt and other income-producing securities increased to 12.4%, and the weighted average yield on total investments increased to 11.2%, largely due to increases in interest rates.
The company's executives, Kort Schnabel and Kipp DeVeer, discussed various aspects of their portfolio and lending activities during the earnings call. They expressed confidence in their portfolio and their ability to manage any problem companies, despite some concerns in the healthcare and manufacturing sectors. They also noted an increase in new borrower activity and expect new deal activity and repayments to pick up in the next year.
Looking ahead, Ares Capital expects an uptick in M&A and sponsor-to-sponsor portfolio company sales in 2024 and remains optimistic about new investment opportunities. However, they also expect defaults to increase due to higher rates and a slowdown in the economy. Despite these challenges, the company remains confident in its portfolio performance and diversification.
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